Caterpillar (CAT, Financial) is an American corporation which designs, manufactures, markets and sells machinery, engines, financial products and insurance to customers via a worldwide dealer network. Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company has been struggling due to lower oil prices; however in the long-term, the company has many tailwinds that can drive its stock price upwards. The company recently delivered a stunning quarter and good things may be just around the corner for Caterpillar.
Sales and revenues for Q1FY15 were $12.7 billion. Resource industries were up 14%. Sales and revenues in Europe, Africa, Middle East region and Asia Pacific were down 23% and 12% respectively.
Profit per share up surged to $1.81 per share from $1.44 per share, compared to the year-ago quarter. The company’s net debt to capital ratio at the end of the quarter was 18.3%.
Can this be a positive for Caterpillar?
CAT operates in three sectors:
- Machinery
- Engines
- Financial products
An average of 30% of CAT’s revenue is earned through the construction industries segment. The recent earthquake in Nepal caused heavy destruction at very large scale and this will point to an enormous construction struggle in the region. The company should benefit from this need for construction equipment.
Oil prices will hurt more as the year progresses
Growth in Caterpillar's reserve Industries division was impacted after mining hit a barrier couple of years ago. While investors were waiting for recovery in the mining sector, another major problem came up: lower oil prices. Approximately one-third of Caterpillar's energy and transportation diagnosis sales were to the oil and gas sector in 2014.Â
For long-term stockholders, these subjects should be impermanent. Many experts expect that oil prices will bounce back. For oil prices, there is a lot more prospective to the north than to the south at this point. There is little risk for the investors.
Future Growth
Caterpillar will moderate costs this year, though on a smaller scale. It presumes reformation costs to come down from $441 million in 2014, to $150 million this year. The company plans to spend more on R&D this year even as it decreases operating expenditures.
Long-term prospects and conclusion
While the declining oil price is currently a problem for Caterpillar's development, it can be a benefit later. At first it causes weaker interest for drilling, in this way injuring interest for Caterpillar items in its energy and transportation segment; however, long haul shortcoming in oil costs will increase construction due to lower expenses. That will have a solid positive impact on Caterpillar's different business segments.
Additionally, while foreign exchange is harming worldwide organizations taking deals dollars back to the U.S., it likewise implies that working together abroad expenses less. Subsequently, if Caterpillar can exploit a solid dollar and put resources into required capital consumptions in its worldwide manufacturing plants, it will further set the organization up for a bounce back once worldwide interest enhances - and eventually, it will. Hence, I think Caterpillar is a buy after its solid Q1 earnings.
